The End of Revolving Credit
In early August 2026, the RBI released draft directions that could significantly reshape the lending landscape. The core proposal is to prohibit NBFCs from offering revolving credit facilities. This means popular products like flexi-loans, digital credit lines,
and some 'Buy Now, Pay Later' (BNPL) services, where borrowers can draw, repay, and redraw funds up to a set limit, would no longer be permitted. Instead, the draft rules state that NBFCs must restrict all their lending to fixed-term loans. A term loan is defined as having a fixed principal amount, a predetermined repayment schedule, and a sanctioned limit that cannot be replenished once repaid. This change would not apply to the few NBFCs that are specifically authorized by the RBI to issue credit cards, as revolving credit is an inherent feature of that product.
Why the RBI Is Making This Change
The RBI's move is primarily driven by a push for greater financial stability and risk management. Regulators are concerned about the potential for 'evergreening' of loans, where borrowers use fresh drawdowns from a revolving facility to service existing debt rather than using genuine cash flows. By mandating fixed repayment schedules, the central bank aims to instill greater credit discipline. Additionally, this proposal is part of a broader strategy to harmonize regulations between banks and NBFCs, reducing regulatory gaps. NBFCs do not have access to low-cost Current Account and Savings Account (CASA) deposits like banks, making their asset-liability management different and potentially less suited to supporting open-ended revolving credit products.
Impact on NBFCs and Fintechs
The implementation of these rules would force many NBFCs and their fintech partners to completely redesign their products. For lenders who have built business models around flexible credit, this could disrupt customer acquisition, slow loan growth, and compress yields, as these products often carry higher fees. Companies with significant exposure to flexi-loans, such as Bajaj Finance, saw their stock prices dip following the announcement. The draft rules could also affect supply-chain and inventory financing, with lenders awaiting clarity on whether these will be classified as revolving credit. In response, analysts predict a greater pivot toward secured lending, with the gold loan sector already seeing a significant surge.
What It Means for Borrowers
For customers, the primary impact will be a loss of flexibility. Revolving credit lines from NBFCs have served as a vital source of emergency liquidity for many individuals and MSMEs. The proposed shift to term loans means borrowers might need to apply for a new loan each time they need funds, rather than drawing from a pre-approved limit. This could also increase the overall cost of borrowing for some, as they may need to take out a full loan upfront and park the unused funds, incurring interest on the entire amount. Customers who use BNPL apps or other digital credit lines backed by NBFCs should check the terms to see if their facility is structured as revolving credit.
